Web.com announces second quarter results

August 18, 2006

Web.com, a web-hosting and online services company, has released its second quarter financial results and associated statements - and it's clear that the company has experienced both the ups and downs of executing on its goals.

On the upside, the company achieved an industry-first achievement of securing a non-exclusive license agreement with Hostopia.com Inc. last month. The agreement granted Hostopia rights to two of Web.com's patents over five years on a non-transferable basis. The specific licensed patents were U.S. Patent numbers 5,680,152 and 6,789,103 and broadly cover methods for website building and web hosting control panels. Importantly for revenues, the license agreement states that Hostopia will pay Web.com a royalty equal to 10% of their gross U.S. retail revenues for five years.

On the downside, the company failed to deliver on the expected and announced acquisition of Houston-based WebSource Media - a business offering "easy and affordable built-to-order websites". The announced acquisiton was to have added about $9 million in annual revenue to Web.com.

However, according to published reports from Web.com, the company filed to rescind its acquisition of WebSource media just about one month after the announcement. This action was taken after the Federal Trade Commission filed a sealed action in the United States District Court for the Southern District of Texas against WebSource Media, L.L.C. and its members - alleging unfair and deceptive acts and business practices prior to the acquisition.

In a press release issued by Web.com, President and CEO Jeff Stibel discussed the effects of the rescinded acquisition on the second quarter resutls, "Web.com continued to drive subscriber growth across its core website and web services plans by refining our sales and marketing efforts and working closely with strategic distribution partners. While we had unfortunate news about an acquisition we made during the quarter, the company has moved on and is working on further solidifying its position as a leader in the industry."

On the financial side of the report, Web.com reported that total revenues for the quarter were $12.1 million, down from $12.3 million in the first quarter of 2006. The second quarter marked the last quarter of recognizing Verizon revenues (a deal that was initially cancelled in December 2004 and terminated in the second quarter of 2006).

On the organic customer acquisition side of the equation, the company reported that net subscribers totaled approximately 148,000 for the quarter, down from approximately 149,000 in the first quarter of 2006. The reduction in the second quarter as compared to the first quarter includes the loss of approximately 3,200 Verizon subscribers. Excluding the loss of Verizon subscribers, the company added approximately 1,600 subscribers in the quarter.